When Riviera filed for bankruptcy earlier this month they had announced that the reorganization plan was supported by more than two thirds of the debt holders under its senior credit facility.

The terms of the pre-negotiated restructuring calls for those debt holders to exchange their debt for controlling equity; debt holders that include Barry Sternlicht of Starwood Capital who has been interested in taking over the operation for the past four years.

In 2006, Riviera shareholders rejected an offer made by Starwood to purchase the Las Vegas operation for $17 a share and in March purchased the resorts first mortgage note for approximately $0.50 on the dollar as well as 3.8% of equity in the company through Starwood Global Opportunity Fund VII-A LP, which owns 474,020 shares of the stock.

The deal will also provide between $10 million and $30 million in financing through Starwood and other majority investors and eliminate approximately $170 million of debt.

Riviera Holdings Corp filed for pre-negotiated bankruptcy protection along with its subsidiaries Riviera Operating Corp, the owner of the Las Vegas Riviera Hotel and Casino and Riviera Black Hawk, the owner of the Colorado Riviera Black Hawk Casino.

According to the filing, Riviera Holdings Corp and its subsidiaries have entered into a planned restructuring agreement with 75% of its senior secured lenders to re-negotiate nearly $248 million of debt under a June 2007 senior credit facility.

However the pre-negotiated bankruptcy petition should allow the companies to continue to operate during the bankruptcy process, once approved by the Judge.

“There will be no effect on our employees, vendors, and most importantly, our customers,” the company’s general counsel Tullio Marchionne said “By agreeing with our secured lenders in advance, we will be able to proceed with an expeditious restructuring through bankruptcy which will provide us with a viable capital structure, as well as additional financing.”

The casino operator reported through a Securities and Exchange Commission filing today, that it lost $4.5 million, or $0.36 a share, during the first quarter of 2010 compared to a loss of $1 million or $0.08 a share in the same period last year.

Net revenue was down to $30.8 million from $34.7 million in the year-ago quarter.

Although Riviera says they are still negotiating with lenders to refinance or restructure more than $227 million in debt, they remain in default on debt obligations.

“We believe that due to a number of factors affecting consumers, including but not limited to a slowdown in global economies, contracting credit markets and reduced consumer spending, the outlook for the gaming and hospitality industries remains highly uncertain. Based on these adverse circumstances, we believe that the company will continue to experience lower than expected hotel occupancy rates and casino volumes,” Riviera said in the quarterly report.

Westerman has held the role of chairman and chief executive officer of the company and its predecessor, Riviera Inc since 1992. Prior to ’92 Westerman worked as a consultant to Riviera Inc.

The essential duties of CEO will be split between the company’s general counsel Tullio Marchionne, Chief Operating Officer Bob Vannucci and Chief Financial Officer Phillip Simons.

The role of chairman will be taken over by Vincinet DiVito who has served on the company’s board of directors since 2002.

The Riviera Holdings Corp. owns and operates the Riviera Hotel & Casino in Las Vegas and Riviera Black Hawk Casino in Black Hawk, Colorado.

Last month the company announced that it was working with its various lenders to renegotiate debt in an attempt to avoid seeking bankruptcy protection.

The company reported that it had lost $5.6 million or $0.45 a share on revenue of $30.2 million in the fourth quarter of 2009, compared to a loss of $12.7 million in the fourth quarter of 2008.

For all of 2009, Riviera in Las Vegas generated casino revenue of $41.2 million, down 18.6 percent from 2008 with EBITDA of $9.6 million in 2009, down from $18.75 million in 2008.

EBITDA for Riviera Black Hawk in 2009 was $9.9 million, down from $12.1 million.

While avoiding comment on Starwood Capital’s comments that they were preparing to take over Riviera through a prepackaged bankruptcy plan they did say that “With the aid of our financial advisers and outside counsel, we are continuing to negotiate with our various creditor constituencies to refinance or restructure our debt. We cannot assure you that we will be successful in completing a refinancing or consensual out-of-court restructuring, if necessary. If we were unable to do so, we would likely be compelled to seek protection under Chapter 11 of the U. S. Bankruptcy Code.”

Riviera has warned investors for the past year that it may be forced to file for bankruptcy protection after hiring financial adviser XRoads Solution Group LLC.

However according to a Bloomberg report, Starwood and other investors were leading creditors negotiating a pre-packaged bankruptcy after Riviera defaulted on a $245 million loan early last year.

“It’s going very well” Barry Sternlicht said.

Barry Sternlicht through Starwood has bought control of the mortgage on the Las Vegas casino resort for $0.50 on the dollar as well as 3.8% of equity in the company through Starwood Global Opportunity Fund VII-A LP, which owns 474,020 shares of the stock currently trading at $0.40 cents.

Four years ago, shareholders rejected an offer made by Starwood for $17 a share, now he could own both the Las Vegas and Colorado properties for approximately $5,000 a room.

“Less than the cost of the furniture,” Sternlicht said “I’m thinking of it as a long-term parking lot. We’re just going to hold it and have very little invested in the deal.”

Documents filed with the federal Securities and Exchange Commission showed third quarter revenue at the Las Vegas Riviera dropping to $22.6 million from $30.2 million in the same quarter of 2008.

Riviera Holdings said in its quarterly financial report. “As a result of the economic factors and the defaults on the credit facility, there is substantial doubt about our ability to continue as a going concern.”

The gaming company has been in default of its $245 million credit agreement since February, as well as in default of a credit swap agreement with Wachovia. In order to avoid the filing the company continues to make attempts to renegotiate loan terms with creditors and restructure $281 million in debit.

Starting today, the company’s stock will be carried on the Pink OTC Markets, using the symbol “RVHL.”

The gaming company’s value had declined from a high of over $39 as recently as 2007, to 34 cents at close yesterday.

Riviera officials say they voluntarily de-listed the stock after they were warned by the NYSE to meet compliance regulations. They noted the stock exchange had written the company that its losses left significant doubt as to whether Riviera could meet its future obligations.

Riviera operates the Riviera Casino in Las Vegas and the riviera Black Hawk Casino in Black Hawk, Colorado.

Revenues continued to plummet for the gambling company, which operates the Riviera Casino on the Las Vegas Strip, as well as the Riviera Blackhawk, in Colorado. This year’s first quarter brought $34.7 million, compared to $48 million in 2008.

Riviera has defaulted on its loan agreements and, barring a last-minute restructuring, may be forced to seek bankruptcy protection. The company insists it has the funds to maintain daily operations.

“The continuing devastating competitive pressure on room rates, the rapidly declining visitation to Las Vegas, especially by convention attendees, verify we made the correct decision,” said CEO William Westerman, referring to the decision to stop interest payments on loans to retain cash liquidity.

Wachovia’s credit deal with Riviera requires the two maintain an agreement on control of deposit accounts. But Riviera officials say Wachovia made unreasonable demands in the last negotiation, including the right to transfer cash to other accounts in case of a default.

Riviera CEO William Westerman said, “Under the terms of the proposed (agreement), Wachovia could gain access to all cash held in Riviera’s bank accounts by merely advising the banks of a notice of default without first allowing us the opportunity to cure the default, no matter how trivial.”

He assured investors that Riviera was current on all payment obligations, and is just avoiding entering a situation that may block access to its own cash.

Nevertheless, nervous observers reacted, sending the gaming company’s stock to a decline of more than twenty percent. Defaults by Trump Entertainment, Stations Casinos, and MGM Mirage have left investors leery of casinos mentioning the word “default.”